Trade Desk Inc (TTD) 2021 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Trade Desk First Quarter 2021 Earnings Conference Call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Chris Toth. Sir, the floor is yours.

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk First Quarter 2021 Earnings Conference Call.

On the call today are our Founder and CEO, Jeff Green; and Chief Financial Officer, Blake Grayson. A copy of our earnings press release can be found on our website at thetradedesk.com in the Investor Relations section.

Before we begin, I would like to remind you that except for historical information, some of the discussion and our responses in Q&A may contain forward-looking statements, which are dependent upon certain risks and uncertainties. In particular, our expectations around the impact of the COVID-19 pandemic on our business and results of our operations are subject to change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings.

In addition to reporting our GAAP financial results, we also present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release. We believe that providing non-GAAP measures, combined with our GAAP results, provides a more meaningful representation of the company's operational performance.

I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

Thanks, Chris, and thank you all for joining us today.

As you can see from our earnings press release, The Trade Desk reported a very strong first quarter this year. This performance is especially encouraging because annual advertising budgets are often being reset and reconsidered in Q1, making them historically harder to predict. And this year, it was especially challenging because of the global pandemic. The unique worldwide business environment helped accelerate digital advertising in most parts of the world as we exited 2020. However, several verticals are still to come as we all march up and out of the recovery curve.

For the quarter, we exceeded our own expectations, and this is another positive sign that The Trade Desk has emerged as the default demand-side platform for the open Internet. A steady stream of new brands and agencies started to work with us for the first time in Q1, and we continue to win additional spend from existing customers. Industry momentum around key drivers such as CTV and UID2 could not be stronger. The challenges of the past year have only served to focus our attention on how we can drive real business value for our customers and partners. And that has enabled us to forge closer relationships with the biggest brands in the world. As a result, revenue was $219.8 million, an increase of 37% compared with a year ago. Adjusted EBITDA increased to a Q1 record of $70.5 million. This Q1 record is on both an absolute basis and a percentage of revenue basis.

As we continue to grow and represent more and more large brands and a larger percentage of ad agencies' brands, we will continue to become a more accurate bellwether for the open Internet and advertising spend. When you consider our performance in the context of the health of the overall advertising industry, you can see how we continue to outperform our industry and gain share. For example, WPP's GroupM predicts worldwide advertising revenue will increase 10% in 2021. Publicis Groupe's Zenith expects overall U.S. ad spending to rise 3.2% in 2021, following a drop of 5.4% last year. GroupM also predicts digital advertising will surge 14% to nearly $400 billion.

We are growing at a pace well ahead of the industry. CTV continues to lead our growth and our international expansion continues to yield very encouraging results. Overall, international spend grew much faster than spend in North America. Growth in EMEA was especially strong. We are starting to see green shoots from the investments we have been making in CTV in Europe. APAC also outgrew the U.S., which is very encouraging. That is what we expect for the foreseeable future as the most rapid economic growth, driven by the rise of the largest middle class in history, will come out of Asia in the next decade.

In order to provide some color on our results, I'd like to focus on 3 major points. First is the evolution of CTV. As I mentioned, CTV continues to be a major driver of our growth. but it's also the catalyst of broader change across the advertising landscape. Second, I'd like to touch on identity. There's a ton of discussion about identity in the industry right now with a fair number of misperceptions. And third, as we head into the summer, we'll be getting ready to launch our new platform, Solimar. And I'd like to spend a moment on what's new about the platform and why we think it's the right platform to meet the emerging needs of advertisers around the world.

So first, CTV. With so much attention on the CTV market today, it's sometimes easy to forget how far we've come in just a short amount of time. After all, CTV is a fairly young advertising channel. At first, the early mover market, such as the U.S. and Australia, operated with fairly limited supply, as you'd expect. Back then, most connected TV was SVOD, the subscriptions paid for the content, not ads. For most of the last few years, that created scarcity in the AVOD portion of the CTV market. That scarcity by itself kept CPMs high. As the market evolved, more consumers shifted to CTV over the last couple of years. Almost all major content owners put more premium inventory online.

Today, TV providers are fighting for consumer attention and there is more competition than ever. The gap in cost adjusted efficacy between linear and CTV has stayed strong. However, as advertisers embrace CTV to leverage data and relevance, CPMs remain high, not because of scarcity, but because the power of data-driven targeting is quickly becoming more apparent. Only effective data-driven targeting can achieve the value sought after by advertisers and just as important, preserve the high CPMs for publishers as premium inventory impressions increase. In other words, TV advertisers now have choice. They have the ability to differentiate between content across channels more than ever. And that's critical to a healthy and competitive CTV market.

TV is often the most effective part of a media plan. It's also generally the biggest. It is my prediction that AVOD will outpace the growth of SVOD over the coming years. But for that to happen, AVOD will need to get better at relevance and efficacy through products like Solimar. More to come on Solimar later.

Now just to put the CTV market scale in perspective, according to Omdia's latest research, there are now more than 200 million active AVOD users in the U.S. alone. By 2024, Omdia predicts that annual CTV advertising revenue will top $120 billion, outperforming subscription revenue by more than 20%. Omdia also predicts that markets such as the U.K. and Germany will be the fastest-growing CTV markets outside of the United States, driven by very similar consumer shifts. These trends are very consistent with what we're seeing, and that's why we're investing so heavily in CTV.

For example, we recently announced a new partnership with Sky TV, one of the major broadcasting platforms in the U.K. and more broadly across Europe, giving us access to one of the richest sources of premium inventory content in that region. Through our platform, advertisers now have the ability to be more deliberate about what CTV ads they buy and to apply data-driven decisioning in TV at increased scale. And the increased scale and deliberate choices are affecting everything about the TV advertising business. Just look at the upfront process, which is kicking off again this month. More and more of the world's top advertisers are making programmatic buys a larger component of their upfront commitments.

As you may have heard from many advertisers publicly, they want more data-driven flexibility in their TV advertising campaign. They believe their digital buys should be a core element of their upfront commitment. And the networks are adapting to that demand. Ultimately, this will lead to the development of a new programmatic forward market for CTV inventory. We are pioneering this work, collaborating with companies such as Magnite and FreeWheel. Our goal is to significantly improve the legacy upfront process by using more data and measurement to make better deals for both advertisers and content owners. This won't happen overnight. It will be a multiyear effort. But it's these kinds of innovations that are making The Trade Desk such an integral component of the tech showcases that major platforms, such as Disney, NBCU and Nielsen, are putting together as a part of the upfront this year.

I'm encouraged by how traditional TV companies and broadcasters are thinking about this. They are not standing still or waiting around, they are leading. With NBCUniversal, for example, we're working on innovative ways to bring e-commerce into the CTV experience. So if you see an ad for a product, you can interact with it and purchase it with one click right on the screen.

Broadcasters are also applying the same innovation focus to the world of identity. In the last couple of weeks, we've announced collaborations with OpenAP and Blockgraph. These companies are each owned by some of the largest TV networks in the United States. They are both working on creating new approaches to identity that work for CTV, which bridge between CTV and linear TV. Both organizations have announced that their technology will be interoperable with UID2, which brings me to my second point, the evolving world of identity.

Let me start the discussion of identity by clarifying what we're talking about. This discussion on identity is bigger than cookies. It's bigger than any company or any channel. Cookies are not present in CTV. However, a privacy-safe identifier for CTV will be a major factor in driving relevant ads and managing reach and frequency across apps, channels and devices. CTV needs this kind of approach in order to maintain or increase CPMs in a way that help fund the amazing content that has kept most consumers sane during this pandemic.

The current TV content arms race cannot be financially sustained for providers or consumers without relevant ads. So you can see how the identity discussion is bigger than cookies or even CTV or Google's decision to deprecate cookies for the browsing Internet. This is a discussion about how the Internet pays for itself. It's also a discussion about control. Is the Internet going to be controlled by a few large tech companies or will power be distributed and will choice sit with consumers and their relationship with each content owner? We launched the UID project with the goal to improve the Internet. This is not merely a marketing campaign about how deeply we care about consumers, the quality of the Internet or consumer privacy. Of course, we deeply value all of those things, which is why this is not about marketing, but about action. It is a movement.

We are working with the leaders in the open Internet to build a better Internet. We want consumers to have control in a privacy-forward manner that transcends a single company's ecosystem. And that's why identity continues to be the hottest topic of conversation in our industry. It feels like every media outlet from The Wall Street Journal to the advertising trades is covering identity these days. Google has issued several blogs over the past couple of months clarifying their position on identity. They plan to use a Google login as a core part of their identity solution, but at the same time, in some cases, they've been critical of others doing something very similar. While we'd like to see Google support the open Internet more publicly, given DoubleClick is one of the most important open Internet players, they are doing a good thing by making privacy a priority for Google.

Fortunately, for The Trade Desk, since founding the company back in 2009, the health of the entire digital advertising ecosystem has been a core value of our company. We care deeply about improving the entire Internet, not just our small corner of it. We have a guiding principle that informs every product we ship. What do I, as a consumer, want the experience to be for me, for my family? We answer these questions first. And then, of course, work to make sure that everything conforms to both the letter and spirit of the law.

UID is built for consumers with better content and an Internet where power is distributed, not consolidated. It is designed to operate with a clear consent framework, better explanations about the value exchange of free content and improved consumer controls. We have always believed that taking a consumer-first approach is the only way to address identity over the long term in a way that meets the growing regulatory and consumer focus on privacy. We're skeptical about solutions that lean on opaque cohorts or solutions that try to make decisions for consumers instead of providing consumer choice. We do not believe those options are sustainable as privacy conscious in the long term. They don't empower consumers sufficiently.

And that's also why the open Internet is rapidly adopting UID2 because this is much bigger than The Trade Desk. UID2 is about a better Internet. It will be open sourced with independent governance. Personally, I was inspired this last quarter when working directly with Arthur, the CEO of Publicis, to make sure that their ID and UID2 were interoperable. Like Arthur, there are so many people and leaders across the open Internet that are engaging with us and recognizing the significance of this moment. The momentum behind UID2 is beyond anything I could have scripted. And for me, it's probably the most inspiring movement that I've experienced in this industry.

I don't think I've explained well for Wall Street how UID2 has gotten so much scale so quickly and why I'm so positive about this movement. Let me try to add more clarity. Remember how UID works, consumers sign in once with their e-mail address and then opt in site by site, just once per site or app or channel. This is a significant improvement to the consumer Internet experience today, where intrusive toasts or cookie pop-ups appear on almost every premium content site and seemingly every time you go there. Some have mistakenly thought that UID2 is an SSO or a single sign-on and that we are trying to build something like Gmail with the hope of attracting billions to a new brand and a new consumer-facing login service. It isn't.

It's a common ID that can be used by many different advertisers and publishers. It often originates from publishers with existing sign-on systems. Consumers can then engage with privacy settings and opt out directly from the services they know. While we're partnering with several industry leaders like Criteo to build a new SSO to help medium and smaller publishers, those efforts are innovations on top of UID2. With UID2, the first e-mail authentication provides the consumer with the explanation of the value exchange of the Internet. The goal is to make it clear and consistent. And with adoption by a who's who of leading publishers and supply-side partners, the UID2 community has already achieved significant scale. UID2 does not need some magic number of single sign-ons to be on par with the billions of cookies out there to be successful. We are already seeing widespread adoption by integrating with existing publisher sign-on systems.

The Wall Street Journal reported 50 million UID authenticated users in the U.S. a couple of months ago, and we have seen more partners adopt since then, multiplying that user number. And remember, we're only a few weeks into beta testing. The list of publishers, advertisers and data partners that are currently in the integration process or committed to UID2 is larger than those that we've announced publicly. The progress we've made on UID2, the momentum we are seeing is all beyond anything we could have envisioned this early. I'm so glad to have worked with executives at the biggest brands and biggest agencies and biggest TV companies, biggest websites to implement something bigger than any one of us. It's an honor to partner with so many companies and see UID2 evolve as something that belongs to the community.

And this is not just a U.S. phenomenon. Even though we are early in the journey outside of the U.S., we're seeing rapid progress in key markets such as Australia, Southeast Asia and in Europe with major publishers and advertisers joining this industry-wide effort. I'm convinced that over the past month, the momentum behind UID2 has only been hastened by Google's latest position statements. Those blogs galvanized an entire industry on a new approach. The Trade Desk, our agency partners, advertisers and premium content partners care deeply about consumer privacy. Remember that most major brands and many premium content providers have a decades-long relationship with their consumers.

I've never met a large brand or a content owner that wants to ever violate consumer trust or even just be seen to violate trust. They've worked so hard to build that trust over many years, and that's why trusted brands such as Hershey's have declared their support for UID2. And because of our commitment to trust and transparency, many content owners are happy to partner and share data with companies like The Trade Desk. It's the companies in the middle that they're concerned about.

And that's why we're excited about one of the innovations we're building on top of UID2. It's being developed initially for certain broadcast networks and it's called Double Encryption for Publishers or DEP. DEP allows publishers to encrypt UID2 and only unencrypt it for designated parties, such as a particular advertiser or partner. DEP protects against data leakage and the publisher has the power to control the process with precision. As such, DEP is an important innovation for publishers as they integrate their single sign-on process into a broader ecosystem. This can be used to prevent a company in the middle, even in the ad-serving walled garden, from taking data or insight. By the way, this is just one example of how UID2 allows for innovation on top of the core open source technology. In this way, UID2 will ultimately prove to be an innovation that supports more than just today's privacy expectations.

At the same time, it's also important to note how UID2 can accelerate the goals of the California Consumer Privacy Act and Europe's GDPR. We believe that UID2 best meets the evolving regulatory principles around privacy that are being put into place around the world. So you have to focus on the principles, and those principles focus on consumer control, which is the design point of UID2. In many ways, we believe UID2 is the vehicle that enables regulations such as GDPR to realize their full potential.

Another important aspect of UID2 beyond the core identity service is its emerging role as a new common currency of the open Internet. Advertisers have the ability to deterministically measure more effectively across channels and to better manage frequency across channels and devices in a way that is simply not possible with cookies, for example. It is also in this context that our partnership with Publicis becomes important.

Publicis recently announced that they would make their Epsilon CORE ID interoperable with UID2, and that The Trade Desk would become the exclusive third-party DSP for Publicis' CORE ID services. The Epsilon CORE ID graph includes IDs for more than 250 million users and a wide range of on-site and off-site data. The ability to integrate with this kind of off-site data is critical as advertisers think about activating their own first-party data in a new identity environment. Whether we are talking business performance measurement or broadening audience segments or brand safety, partnerships with companies such as Publicis and Walmart are so important to realizing the full potential of data-driven advertising, and there are many more in the works.

Take the shopper marketing industry as an example. According to some estimates, the TAM for shopper marketing is well over $100 billion. More and more retailers are recognizing the value and power of their shopper data. Listen to almost any retail earnings conference call these days, and you see how companies want to activate their first-party data or monetize their proprietary data. Retailers are starting to work with us on strategies to liberate data so their suppliers can market more effectively in a secure, privacy-safe way. The go-to-market approach for each retailer may be slightly different, but the common thread is that these retailers understand that the only way to realize the full value of their data is on the open Internet. There's no point in building walls around it. Brands will, over time, always gravitate to places where they can be deliberate and where they can measure ad impressions across channels.

There are some companies, mostly those with a dominant walled garden approach, that believe the Internet can be controlled by a few. Then there's the rest of us who believe that an open, competitive Internet marketplace is the only real viable approach that preserves value and opportunity for all participants. By the way, I don't think there's anything in the advertising world that will unite fierce competitors today more than this principle. Many of our largest customers are fierce adversaries with each other every single day, but they agree on this. And we are honored to be working with all of them to improve privacy standards and practices across the Internet. We all agree that the open Internet is the best way to activate first-party data and to measure campaign performance against real business goals with a much clearer understanding of actual consumer actions, which brings me to the third point I want to cover today, the launch of our new Solimar platform later this summer, which incorporates many of these principles.

Just think about the pressures that today's marketers are under, proving the ROI of every advertising dollar, which means that advertisers want better measurement and the ability to tie measurement to actual business outcomes, like sales in a Walmart store or foot traffic onto an auto dealership, activating valuable first-party data in a secure way that respects consumer privacy, all in a new identity environment, and completely rethinking how to approach TV advertising, which is the largest channel for many of our advertisers. Solimar has been many years in the making and is the biggest platform upgrade in our history. And it has been designed and engineered to meet these evolving needs of the modern marketer.

For one thing, the UX is completely redesigned. It brings all the features of our platform together in a very easy-to-use interface. It starts with your goals as a marketer, whether those are marketing goals or business goals or some combination, better, more expressive, more detailed goal setting at the outset means that the Koa AI system can be more effective for the media trader, optimizing campaigns on the fly. Solimar will have the industry's easiest on-ramp for our customers' valuable first-party data. In a new identity environment, that data becomes even more important, but advertisers want to unleash it in a secure, trusted environment. Solimar provides that, and innovations such as UID2 and DEP will only increase advertiser trust in the platform.

And Solimar is a closed-loop system. It does more of the work for you, engaging a much richer measurement marketplace, incorporating on-site and off-site data so an advertiser can better tie a marketing campaign to a real business outcome. Again, think about the shopper data example. Advertisers want to understand how their campaigns are driving in-store sales. We are building that off-site data into Solimar, whether it's retail stores or auto dealerships or ticket sales or any other form of business performance data, so the advertising campaign can seamlessly optimize for those business goals. In doing so, Solimar liberates the media trader to focus on campaign performance rather than having to turn the dials on every aspect of campaign management. Solimar can manage the details, allowing the media trader to focus on more strategic objectives. So with the Solimar launch, we will be heading into the second half of the year with a great deal of excitement and momentum about our ability to best serve the needs of the modern marketer.

And let me wrap things up on this point. We are off to a very positive start in 2021, exceeding our expectations. And that's because advertisers are increasingly gravitating to our platform as the default DSP of the open Internet. But we are not resting on our laurels. As you know, we are consistently investing in our business so we can continue to lead our industry, whether that's international expansion, innovative partnerships with companies such as Walmart and Publicis, new channels such as CTV, major platform upgrades such as Solimar or integrating valuable new data and measurement capabilities.

And all of those investment decisions are informed by the emerging needs of our customers, advertising agencies and major brand advertisers of the world. They are becoming more data-driven in everything that they do and their expectations of how they unleash data are only growing. And that, more than anything, is what makes me so excited and confident about the future. We are excited to compete for every digital advertising dollar. When we compete, we usually win.

And with that, let me hand it over to Blake to talk about the financials.

Thank you, Jeff, and good afternoon, everyone.

As you have seen in our results, 2021 has started out strong, despite the lingering challenges faced around the world. Q1 revenue was $220 million, a 37% increase from a year ago. Excluding political spend related to the U.S. elections last year, which represented a mid-single-digit percent share of our business in Q1 of 2020, revenue increased around 42% year-over-year in Q1 of this year. This represents a material acceleration on a sequential basis from Q4 of 2020 after excluding election spend.

In Q1, we benefited from continued improvement in the digital advertising environment from both agencies and brands. Growth was broad-based across all regions and channels, with particular strength from CTV, which again led our growth from a channel perspective. Our year-over-year revenue growth also benefited from lapping COVID-related headwinds that we experienced toward the end of March last year.

With the continued strong top line performance in Q1, we generated $70.5 million in adjusted EBITDA or about 32% of revenue. EBITDA continues to benefit from temporarily lower-than-expected operating expenses partly driven by the virtual environment. This includes items such as travel and live company events that have not yet started to resume. Even recognizing that, I'm proud of our continued ability to consistently grow our top line revenue while generating meaningfully positive EBITDA and cash flow.

From the channel perspective, video, audio, mobile and display all grew well into the double digits in Q1. Video, which includes CTV, again, led our growth during the quarter followed by audio.

Geographically, North America represented 87% of spend and international represented 13% of spend. International's overall share grew slightly from Q4 and the prior year due to faster growth in APAC and Europe relative to North America. That said, spend growth accelerated in all of our major regions as North America, APAC and Europe grew spend well into the double digits again year-over-year in Q1. Our offices in Europe showed particularly encouraging results as each office grew spend faster year-over-year in Q1 than total company spend. In APAC, Shanghai, Hong Kong and Tokyo spend all more than doubled. It is still early days for us internationally, but we are optimistic on the trends we are seeing at the start of 2021.

In terms of the verticals that represent at least 1% of our spend, the majority of them grew in double digits during the quarter. Home and garden, technology and computing and shopping were all very strong, with both home and garden and technology and computing more than doubling during the quarter. Automotive continued its return, growing faster than the rest of the business during the month of February and March. While improving, the travel and entertainment verticals still lag compared to others, but both are showing signs of promise so far in Q2. There is still a lot of recovery ahead of us in these segments, and we are starting to see potential signs of optimism.

Operating expenses were $212 million in Q1, up 41% year-over-year. The growth in operating expenses in Q1 was primarily driven by stock-based compensation. Operating expenses, excluding stock-based compensation, grew 26% year-over-year. A majority of the growth in stock-based compensation expense in Q1 was related to the company's employee stock purchase plan. We currently estimate that stock-based compensation growth should moderate from current levels in the second half of the year.

Income tax was a benefit of $14.6 million in the quarter, mainly due to the tax benefits associated with employee stock-based awards, the timing of which can be variable. Adjusted net income for the quarter was $70 million or $1.41 per fully diluted share.

Net cash provided by operating activities was $75 million in Q1 and free cash flow was $61 million. DSOs exiting the quarter were 93 days, up 1 day from a year ago. DPOs were 75 days, up 6 days from a year ago. We exited Q1 with a strong cash and liquidity position. Our balance sheet had $680 million in cash, cash equivalents and short-term investments at the end of the quarter. We have no debt on the balance sheet.

In addition, our Board of Directors has approved a 10:1 stock split to make the stock more accessible to our employees and to a broader base of investors. Trading of The Trade Desk stock will begin on a stock split adjusted basis on June 17, 2021.

Turning to our outlook for the second quarter. We expect Q2 year-over-year total revenue growth to significantly accelerate relative to the growth rate we saw in Q1 as we lapped slower growth related to the pandemic during the second quarter of 2020. We estimate Q2 revenue to be between $259 million and $262 million, which would represent growth of between 86% to 88% on a year-over-year basis. We estimate adjusted EBITDA to be at least $84 million in Q2. I would remind you that the relative strength in our EBITDA forecast continues to benefit due to the virtual environment our teams are working in. As we think about the full year, we continue to model for an improving digital advertising environment, and we continue to expect a reasonable acceleration in our revenue growth relative to 2020. That said, in the second half of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.

In particular, our Q4 growth rate will comp against the significant spend we generated in Q4 of last year, driven by the rebound in digital advertising as well as material U.S. political election spend that we benefited from in that period. If you recall, U.S. political election spend represented a high single-digit percent share of our total spend in Q4 of 2020.

In closing, while the past year has been far different from anything we could have expected, we continue to grab share and deliver sustainable top line growth and profitability, all while building better relationships with our customers and partners. I'm extremely proud of the way that our employees navigated the challenges of the past year with grit, resilience and with an unwavering commitment to our values as a company.

That concludes our prepared remarks. And with that, operator, let's open up the call for questions.

(Operator Instructions) And the first question is coming from Shyam Patil from SIG.

Nice job on the continued execution. I just had one question. When we look at the year, it seems like there are a lot of moving parts with comps and seasonality kind of as you talked about, Blake. But you guys also have Solimar. You have shopper marketing going live. You have continued momentum with CTV. I was just wondering if you could talk a little bit more about how you're thinking about the business and the growth when you take all of these things into account for the rest of the year.

Yes. Thanks, Shyam, and also appreciate the kind words. Yes, there is so much that I'm excited about for this year. And I think it's fair to say that I've never been more bullish on our business and especially, I've never been more bullish about CTV and our business. The CTV in Q1, once again, more than doubled spend compared to Q1 of last year. So once again, the trend just highlighting just how impressive the trends in CTV actually are. Of course, the move to CTV away from linear or traditional television just continues to accelerate. Blake will talk in just a second. In fact, I'll let him add some color on this question relating to what that means when you extract political.

But to me, the macro trend is the thing to focus on most, which is COVID and the quarantine made everybody stay at home and stream more television and also put pressure on the consumer so that they're looking at their entire TV experience and essentially looking for value and looking for things to cut. And that has meant that cord cutting in linear or cable television has accelerated and that people are looking more and more at Internet-fueled TV. Because there are also more apps than there have ever been, content discovery is tougher in CTV than it's ever been. Is it on that app or is it on that other app? That's a harder question than it's ever been. And it's also harder for AVOD companies to actually become SVOD companies. So they, in fact, need to sell ads and they need them to be relevant in order to be highly effective.

What that means is that AVOD is accelerating more than any other part of CTV. And it means that a platform that sits in the middle, like ours does, looking across all these different apps and channels so that we can help advertisers manage reach and frequency, help them shop for value and being one of, if not the largest source of demand for all these quality content owners means that our future has never been more bright in CTV, which is the part of our business that I'm most excited about. I imagine we'll get a chance to talk more about UID in a second. I'll talk about some of the momentum there. But our overall business stays strong. I'm sure I've left off some highlights. Blake, what would you add?

Sure. Thanks, Jeff. And thanks, Shyam, for the question. I just would reiterate what Jeff said. The fundamentals of the business are really quite strong, in my opinion. The thing to keep in mind, like you said, with all the quarterly comparisons against last year when we benefited from that U.S. political spend, Q1 accelerated not only year-over-year, but on a sequential basis from Q4, once you exclude political, in the prepared remarks, I think I mentioned that you would take the Q1 growth rate of 37% in revenue, that's more like 42% when you exclude political. And then that's comparing really to like a mid-30s growth rate in Q4 of 2020. So that's super optimistic that we can see that acceleration once you exclude that kind of noise we had a bit from the political side.

And then as we look into Q2, reflected in that guidance of the 86% to 88% year-over-year growth, that also reflects an acceleration on a 2-year stacked basis versus Q1. So that trend also is something that makes us super optimistic. So with all of that, seeing reasonable acceleration this year on a full year basis gets me really excited, comfortable about the business and where things are in 2021, but the momentum that we've got from all the things like in CTV and the other areas that we've talked about a number of times gives us really optimism for momentum, not just in 2021, but into 2022 and beyond as well.

And the next question is coming from Vasily Karasyov from Cannonball Research.

Jeff, I know you covered the Unified ID 2.0 quite extensively. The question I get from investors is, where we are in terms of the scale of adoption and where do we need to be for it to be sort of a seamless transition from third-party Chrome cookies to Unified ID 2.0 world? And then another quick question on Unified ID is you talked about DEP. And I think, at least I got a little more confused about Unified ID. Can you please remind us in layman terms how it works?

Absolutely. And very much appreciate the question because there's so much that has been said, so much that needs to be said about this. And despite our best efforts, I still think there's a lot that can be said to provide clarity.

So let me start by just saying Unified ID is a privacy-first initiative that was initially started by The Trade Desk, but it is something that is a movement among the entire open Internet. And it's so much bigger than our company at this point with hundreds of companies working on this at this point, in part because of our efforts to open source it and get the entire community involved. And because of the fact that it by itself is encrypted as well as it comes with terms of service, it is a substantial upgrade to cookies and creates a better Internet for everybody.

And that's one of the things that I think is just a little bit different about what we're doing here is that we're trying to create a better Internet for everybody. We're not just trying to protect ourselves, which I think there are a lot of tech companies that, that's their primary focus, and we're trying to create a better Internet.

Because that's been our focus, when we go talk to major publishers and content owners and advertisers about joining this movement and they realize the way the tech works as well as what we're after, it's really easy for them to get on board. Now, of course, you have to understand the technology, which is somewhat esoteric. But because of the fact that we've gotten so much support from companies like Criteo and from LiveRamp, from Nielsen, from the Washington Post, and industry initiatives like or bodies like Prebid and PRAM and IAB, we're really excited to have that sort of support and momentum.

In The Wall Street Journal, I know they printed a month or 2 ago that there have been 50 million UID authenticated users in the United States alone. We've seen that increase by multiples since then. So the momentum is just unbelievable. And the number of companies that are in the process of implementing is exponentially higher than those that we've issued press releases on. So anybody that wants to go see the caliber of companies that we've been working with, you can see a double-digit number of press releases of companies adopting it and supporting it.

I've had multiple CMOs from the biggest brands in the world say, we're with you. If there's anything we can do to help you, please let us know. We've heard the same thing from TV content owners, the biggest content owners in the world. So it's just been fantastic. The momentum is unbelievable.

And then just 2 last points that I want to cover on this. One is some people say, well, what does this mean? And what does the momentum mean? And what will the world look like next year when cookies are deprecated and we're relying on Unified ID and things like it? I personally think the Internet is going to be a lot better. And it's going to be a lot better because you'll get rid of those annoying toasts that say, there are cookies on this site, and you'll opt in onetime per Internet with an e-mail address, so in other words, onetime. And then you opt in one by one for each site and for each app so that you're giving them consent, which I think is in line with what GDPR and CCPA and even what Apple is trying to do, which is give empowerment to the consumer and better explain the quid pro quo of the Internet.

And because I think we'll, as a general Internet community, do a better job of explaining the quid pro quo of the Internet, I also think that data companies that are doing the right thing, meaning getting consent and operating in a way that we would all want them to be operating, they'll thrive and they're going to be doing better than they've ever done before. Cookies were actually a really (expletive) methodology for them to build their best businesses on top of. So I think that's going to be a lot better.

To answer your more sort of esoteric or nuanced question about DEP, so what Unified ID enables in part because we're open sourcing it and we're making it so that people can innovate on top of it. That's the thing that's really great about open source code is that you can create innovations on top of it. And that's where our work with Criteo and others to build a single sign-on comes in. That's an innovation on top of Unified ID. And that's also where DEP comes in.

So let me take a stab at explaining what DEP is. So it stands for Double Encryption for Publishers. And the reason why we're calling it double is because UID has already encrypted itself. So you can actually encrypt that again. And by encrypting that again, you make it so that you're effectively, the publisher, creating the key where you can decide who can unlock that and gain any insight. So as they're passing an identifier like UID2, and they could use it on any other identifier, as they're passing that in a request for a bid or in the sort of mechanics that fuel the Internet, they can encrypt it and then they, at their own discretion, can decide who can unencrypt that, which is separate from the encryption that comes with UID. So by providing additional layers of encryption, we're providing additional layers of security for consumer privacy as well as for the value chain of the Internet.

Hopefully, that commentary just gives you some added color, but I could not be more excited about the momentum. I never dreamed it would go this fast. And all the discussion on privacy as well as identity has actually fueled the momentum.

The next question is coming from Tim Nollen from Macquarie.

Jeff, can I come back to your comments on CTV, particularly in the upfront markets, which you're just getting underway right now, and give us a bit more color really on what you're doing there with networks and with advertisers. And part of the question is, if the upfront is a futures market, programmatic has to date been largely a scatter market. Just if you could maybe help us understand how does programmatic work its way into the upfront itself? How do things like guarantees work and delivery of that? Just any more color you can give us on really how your role, The Trade Desk role in programmatic buying would work in the upfront market?

Absolutely. So first, big picture on CTV, just want to underline that our CTV spend more than doubled in Q1, which just gives us a tremendous amount of momentum. And that's while we're just merely breaking ground on improving the upfront process. So upfronts are, as you highlight, a form of a forward market or buying in advance. But it's a little bit different than what's happened inside of programmatic, where with programmatic, we bring so much more data to the table than what's been used to transact television for the last many decades, that programmatic can be way more effective. It's what enables content owners to have fewer ads in a commercial break, and it's what enables them to get CPMs that are multiples higher than what they can get in traditional television. So running an upfront in traditional television with lower CPMs while running a scatter or spot market with higher CPMs is a bit counterintuitive to the way that TV has historically worked where you're paying a little bit extra for the assurance of it running and buying an advance, which benefit both sides.

So in order for, we think, the upfront market to evolve, you have to create a new marketplace where you layer more data on top of it so that you can get those same premiums. And we think that there is no way for that to exist at any scale without us being actively involved, which is why we highlighted in our prepared remarks that we're working with some of the biggest names in television to make that a reality. And really excited about a new structure for a forward market that just enables more data to be brought to the table. In the meantime, irrespective of those engineering efforts because of the lack of predictability, partly because of COVID and just the state of the world in the future, but also because cord cutting has accelerated because television is just a little bit harder to predict in and of itself.

There are more dollars that are sort of sitting on the sidelines of the upfronts as well as looking for things in programmatic to buy on an always-on basis instead of having to make really huge commitments at a moment where you have less visibility. So you put all that together, we're in a phenomenal position. We're taking incremental dollars that are coming from upfront into digital and programmatic, and we expect, as we continue to roll out, this long-term effort to revamp the upfront with a forward market, a programmatic forward market that will move more and more dollars in the years to come. So a ton of bullishness on what's happening in CTV and the upfront specifically.

And the next question is coming from David Beckel from Berenberg.

I have 2 on UID2. It sounds like there's been significant progress on authenticated users, mentioning multiples of the 50 million that was previously reported. But I did pick up on a comment, Jeff, that you made about there not needing to be a magic number of authenticated users, if I'm interpreting that right, to be sort of on par with the efficacy of cookies. I'm wondering if you could just expand on that a little bit because I think there was some confusion among investors exactly how many people need to be signed up to replicate that effectiveness. But it sounds to me like you're saying that's not even the right way to look at things necessarily. That's the first question.

And then second, just on some of the larger platforms, Google, obviously, and Apple have sort of cast aspersions about the acceptance of hashed e-mail identifiers like presumably UID2. Do you anticipate a reconciliation at some point with those platforms to get them on board to the way that you look at privacy through UID2?

Awesome. Thank you very much. So first, let me talk a little bit about why there is no need for the sort of magic number. So there's a couple of reasons why we frame it that way. And I think you're right that it is a different paradigm that's required. So we're in this really phenomenal position which is, we essentially get to listen and an opportunity to buy roughly 12 million ads every single second on the Internet. It's just a massive amount of volume of ads that are available across the entire open Internet every second and every day, all day. And so when you get to listen and look at that many impressions and then choose which ones you want to bid on, as long as you have insight on a good portion of those, you're in a phenomenal position to pick ones that you know will be effective.

And so whether that's on 71% of ads or on 63% of ads is less important than do you have enough critical mass that you can apply data on those where it's present? And then do you have a common understanding of the user with the supply chain, which UID does a way better job of creating a common understanding than cookies ever did.

I also think it's really important to think about it differently because we are not trying to build an SSO. So some people have sort of wrongly thought that UID is us one by one knocking on consumers' virtual doors trying to get to a 2 billion number like a Gmail or Facebook users or something like that. And that's not the case at all. And instead, what we do is we partner with consumer-facing brands that are part of the open Internet, which is pretty much everybody except for 5, 6, 7 companies.

So by partnering with all of those companies who have logins and relationships directly with consumers and then being a huge source of ad demand for them, which, as you know, most things on the Internet are ad-funded, it becomes a very big cooperative where we're all working together. And it's that big cooperative that I think is a good segue to the second part of your question, where you've highlighted that some big names in tech like Google have said, hey, we're the best at providing privacy-centric methodologies on the Internet. So I think that's debatable.

And I don't necessarily think that simply handing all of our data over to Google or any one company is a good idea. In fact, I think it's a very bad idea. Instead, I think there needs to be a system where you give consumers more control and you actually encourage data to stay where it is, stop moving it all around and especially stop putting it all in one place.

And so I don't necessarily need a Google or Apple or anybody else to see the world the way that we do. I get that this is a very important moment for them to say that they're the best in the world of privacy, even if I disagree with that statement. But what we do need is the community to come together and work together outside of those handful of companies. And in part because of the strong positions that those companies have taken, the community is coming together in a way we never saw with GDPR or really anything else. I've never seen the community, the Internet community, that ad-funded community that basically powers and funds the Internet, come together and collaborate in a way I've never seen this happen. I've just never seen what we're experiencing right now in the way that we're experiencing right now ever before. And so that's all that we need in order for this to be successful. We don't need to all agree on everything because I don't think that will ever happen.

And the next question is coming from Brian Fitzgerald from Wells Fargo.

Jeff, we got an update from Google recently on FLoC. And since then, the waters have even been muddied a bit, quite frankly. It's not clear if FLoC will be workable under EU. And then there's some broader concerns about whether FLoC would enable discrimination in ads for things like housing and mortgages. So I wanted to know if you had any high-level thoughts on what Google is doing, what clients and potential clients are saying about it and how you think that impacts the dynamics in terms of DSP share going forward? And then a quick addendum to that would be, is the pace of share gains you were seeing versus Google, is that accelerating versus what you saw previously in the wake of DoubleClick ID deprecation?

Great. So in the first part of your question, let me just start by saying, sometimes we talk about Google like there's a collective mind at Google and there isn't. And I think it's fair to say that the way that Sundar and the executive team have managed this is to empower each of the local departments or each of the different departments at Google to make their own decisions and act in their own interest. And so if you talk to people at Chrome, as we have, they have a very different position than the people in ads or a DoubleClick. And they have a very different position from the people in Android. So there's a lot of different opinions at Google and sometimes those that make it into a blog post or things like that or into the public arena are not representative of thousands of people at Google that have a different position.

And maybe there's nowhere that, that's more apparent in this discussion than with FLoC. So there has been a lot of question made about FLoC. I do think that's part of the reason why Google has said, if we do end up using them, we won't use them in Europe. And they've also acknowledged that if they do end up using those as a replacement to cookies and not using things like Unified ID that DV360 will be operating at a disadvantage and that they will be operating at a substantial disadvantage in connected TV and they will also be operating at a substantial disadvantage in Europe.

So you can understand why that would inspire some parts of Google to say, we really need to rethink FLoC. And there are those that look at FLoC and say, they're actually more, they create more privacy risk than cookies ever did. And I think there's an argument to be made, but that depends on the details of how they end up working and what they actually end up doing with FLoC. I think there's a reasonable chance they will never see the light of day because of some of those risks and concerns. But if they do it in a very basic way, then it could be a great supplement to UID. But if Google, especially if DV360 didn't use things like UID and then they did use FLoC in a very basic way, which would not have privacy concerns, they would be operating at a pretty meaningful disadvantage because they wouldn't have something else that would do anything close to what cookies did. So very much an open question.

As it relates to share gains, it's really hard to answer that at this point because of the fact that cookies have not gone away. And so one of the things that's really encouraging is that because cookies have not gone away, which often inspires action, like in GDPR, people waited until changes happened. And then they started implementing what they should have in anticipation of change. This is going quite the opposite. People are making changes in anticipation of what's coming. However, because cookies are still in place, there hasn't been sort of fidelity lost and also because the discussions have been so robust and just everywhere, it's hard to tell what's fueling share gains one over another.

I will say that the amount of discussion and wins that we're having relative to all of our competition is greater than I've ever seen it. So it's a really phenomenal time to be in this space. And even though it's a little bit confusing because of all the discussion around identity, the open Internet, in part fueled by CTV and AVOD is doing as well as it's ever done before.

And the next question is coming from Mark Zgutowicz from Rosenblatt Securities.

Jeff, I'm just curious, is the elephant in the room here really consent rates, and I'm just curious how you see the levels of consent rates today coming in, I think, well below most expectations. And if we kind of fast forward to Android ID sort of following in Apple's footsteps, how does that sort of affect the rollout of UID 2.0?

You bet. So I do think that consent is at the core of the discussion that's happening inside of identity. And it's, are our big tech companies going to make the decision for consumers? You're seeing this a little bit in the tug of war that's happening between Apple and Facebook. It is about where does consent come from. And what we're asking the Internet to do is do a better job of explaining the quid pro quo of the Internet and then empower consumers. Make it simpler, easier and more consistent but for them to understand the quid pro quo. Okay, I'm sharing some amount of data and insight so that you can show me relevant ads. And for that, I get free content. We just think that quid pro quo of the Internet has never been explained very well.

We can all look at what companies, some of the big tech companies are doing on that front and have our complaints and whatnot. But overall, we're all moving towards in the same direction, which is giving consumers more control and more ability to create consent. And it's forcing content owners to better explain that quid pro quo of the Internet. What I just want to make sure happens is that consumers do have the ability to weigh in and preserve the competitive nature of the Internet rather than companies, especially those that are very big and maybe focused on protecting themselves more than the Internet can disrupt that, even if it's just a speed bump, which I do think anything any single company does is just a speed bump because I don't think you can disrupt that quid pro quo of the internet in any long term.

Yes. And I respect that, I guess, but I mean it's Apple and Google that are sort of controlling privacy policy, I guess, much more so than GDPR and CCPA. So if we think about the fact that hashed e-mails, which is obviously the underlying protocol of UID, does not have the ability to function because there are low consent rates. Doesn't that sort of mitigate your ability to drive scale with your UID effort?

So I guess I just disagree with the premise of the question that there's low consent rates. That's not the case. And I think some are maybe misapplying IDFA opt-ins, which have numbers that have been shown all over the place. It depends on who your sources are in terms of what the opt-in rates are in terms of IDFA. But what I predict is that long term that people are going to opt in, especially for things like Facebook and Twitter and these apps that have been staples. They will better explain the quid pro quo of the Internet and then consumers are going to opt in. In fact, to our business as it relates to the IDFA changes, we have seen no material change in spend as a result of the IDFA changes. And that's in part because of what I was saying before, which is we have the ability to look at 12 million ads per second. If you change slightly which apps get consent and which don't, but that often continues to happen, that we then just choose from a different set of impressions which ones are the most effective for our advertisers. But we've not seen any material change.

We do expect that we will continue to get consent through our hashed e-mail approach and through Unified ID. Incidentally, every one of the big tech companies that you're talking about, like Apple, I just signed into my Apple ID 2 minutes before this call. It was based on an e-mail address incidentally. It was based on a Gmail address. Google's IDs and their footprint for providing targeted advertising are extremely dependent on e-mail addresses. It's one of the reasons that Gmail is such a valuable asset for Google.

So the idea that an e-mail-based approach to managing consent and opt-in and privacy is somehow in question when those companies are leveraging the exact same approach or something very similar, which is based on e-mail address, I think gives strong evidence that there's a way to do it right, and we're convinced that we're doing it right.

The final question will be coming from Tom White from D.A. Davidson.

Maybe just a follow-up on UID2 and then one on Solimar. Jeff, you referenced UID2's ability to enable better cross-channel measurement and attribution than what's available for cookies. Can you dig into, is there any way you can kind of maybe quantify the benefit to efficacy or targeting? And maybe the extent to which that could act as a tailwind to spend in kind of the initial weeks or months of the transition? And then just on Solimar, how should we think about its impact to the business relative to, say, the Next Wave rollout, which seem to correspond to a nice spike in spend moving over to the platform?

Yes. Fantastic. I'm really glad you asked about the better cross-channel measurement. And it speaks to why one of the very first partners that we went public with was Nielsen. Nielsen has been the gold standard of measurement in TV for decades. And they, of course, recognize that the world is changing as television moves to the Internet and connected TV. And that means that measurement has to change. So they made very clear in our initial discussions that we need a currency of measurement for the open Internet, which, by the way, CTV is all open Internet or nearly all open Internet. And so it becomes extremely important that, that gets measured in a ubiquitous way.

So unlike cookies, where there's constantly this syncing where you're trying to get one cookie ID to match another one. So Trade Desk, for instance, would have cookie ABC that we then had to sync with Google to be cookie XYZ. So that we both understood that ABC and XYZ were the same. So when Google's ad exchange sends us a bid request, we could understand, have a common understanding of the user. And whether that was based on our ID or their ID, it didn't matter, we had to have a common understanding of the user. By using a similar system that requires both encryption as well as terms of service, that makes it so that, for instance, in the example I just gave, us and Nielsen no longer have to do a bunch of syncing to have a common understanding of the user. This makes measurement better.

And in places like TV, where it's pretty fragmented and nobody has a large market share, like there's nobody that has as much of the content on TV as, for instance, Facebook does in social, measuring across apps, channels and platforms is more important in television than arguably any other major channel. And I would argue it's the most effective advertising channel, it becomes really important to do that.

So to the second question that you asked about Solimar. We're really excited. This is the biggest release in the history of our company. And just so much has gone into it. It comes with a redesigned UX again, which is very similar to Next Wave, as you pointed out, greater ease of use. We're upgrading Koa and doing more in AI. We're actually enabling a better measurement marketplace to the first part of your question, which is all about just improving the way that we make it possible to compare the performance of one channel to another and one destination to another.

So not only can you compare, for instance, Pandora to Spotify in efficacy and cost, but you can also compare Spotify to CBS or NBC or Hulu or Disney or ESPN. So it enables a degree of comparison and measurement that has never really been offered before in television. So when we put all that together and launch that this summer, I do think that it will be a game changer for the advertising community and for our company.

Thank you. I would now like to hand the call back over to The Trade Desk for final remarks.

Thanks, everyone, for joining. I know we ran a few minutes over the top of the hour, but again, really good questions, and I hope everyone appreciated the change of time of the call. The numbers on the call are much greater. So we appreciate the feedback that we've received and look forward to speaking with everyone over the remainder of the quarter. So have a good afternoon, everyone.

Thanks, everyone.

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.